close this bookVolume 7: No. 74
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Good investment sites and resources are listed by The Mining Company, . [Tom Murcko , misc.invest.stocks, 02Sep97. Bill Park.] (InvestorGuide Weekly is available at .)

Cents Financial Journal offers commentary from analysts, strategists, and economists. . [InvestorGuide Weekly, misc.invest.stocks, 02Sep97. Bill Park.]

Small business lending has become the fastest-growing and most competitive segment of the banking industry. Bank of America recently pledged $80B in small business loans over the next 10 years. Wells Fargo is offering $1B over six years to Latino entrepreneurs, and currently has over $4B in small business loans. Computerized credit scoring techniques -- expert systems? -- allow large, non-community banks to make such loans. Approval rates are holding steady at about 50%, but now there are more lenders to go to. [LA Times. SJM, 04Oct97, 1C.]

Banks won't underwrite stock offerings of less than $5M, so small businesses are starting to sell stock via direct public offering (DPO). Investors are hungry for small stocks, including the 634K members of 32K US stock investment clubs. "Customers who invest in you remain loyal forever." The most common DPO is a Small Corporate Offering Registration (SCOR), with about 160 filings this year. Half the businesses that attempt DPOs are raw startups, which is why only 35% of DPOs are successful. (CA has rules that limit DPOs by profitless startups, but the restrictions may soon be lifted. Caveat emptor.) SCOR filings, administered by each state, can be for up to $1M. Only companies with $4M in assets or $750K in net income can list on the Nasdaq SmallCap market, but there are several websites now that list DPOs. Direct Stock Market gets about 3K hits/day, concerning more than a dozen DPOs. [Steve Kaufman, SJM, 05Oct97, 1E.] (For more on the subject, look for books by SF attorney Drew Fields, or contact the California Capital Access Forum (also in SF).)

Sometimes tech stocks overheat, with valuations far beyond those of equivalent companies. These stocks tend to collapse as the next wave of technology approaches. Watch for stocks with fast run-ups that are trading for high multiples of their sales per share over the past year. (Price-to-earnings aren't helpful for companies that have no earnings.) Excite Inc. has been trading at 13 times its sales; Yahoo Inc. at 46 times sales. Other recent high flyers include Asyst, Spectrian, DSP Group, Credence, Premisys, E*Trade, DSP Communications, Sandisk, and Legato. Kenneth Fisher, chairman of a 1.7B money-management firm, estimates that of ten such stocks the odds are that "eight are crap, two are OK, and none of them is the next Microsoft." [Adam Lashinsky, SJM, 26Sep97, 1C.]

An SMU/Dartmouth study of 1,200 initial public offerings (IPOs) found that neither the rockets nor the laggards were good bets after the first day. The "extra hot" ones tend to decline steadily relative to comparable public companies, dropping 10%-15% below average over a year. The cold ones tend to hold steady at the mean. "Cool" stocks rising 0%-10% on the first day tend to hold at about 5% above average after a month or two. Best stocks were the "hot" ones that rose 10%-60% on the first day; their average climbs steadily to 14% above comparable stocks a year later. Underwriters try to price stocks about 15%-30% below true value; for these "hot" companies, they hit it right. (IPOs of less than $50M or $8/share were excluded from the study, as were financial companies.) Another good bet is larger, more established companies with reasonable initial stock prices, according to other sources. And small investors should be wary if large investors are selling, or "flipping," their shares within the first day. [NYT. SJM, 30Jul97, 1C.]

Rambus Inc. (Mountain View) was this year's spectacular IPO. It went public in May at $12/share, reached $80 in August, and then dropped to $50 by late September. However, that high valuation now makes it hard for the company to hire executives. Candidates are offered stock options at a relatively high price, and have little expectation of another spectacular rise in value. If stock value falls, the options are worthless. This effect keeps siphoning talent away from public companies toward private startups that appear to be hot. (Rambus hired 30 people in the four months before going public, but only one person in the four months since.) 62% of executive pay in Silicon Valley is based on stock options. Keeping people after their options expire often requires "evergreening" techniques such as offering new options and large bonuses. [Scott Herhold, SJM, 26Sep97, 1C.]